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In 2002, Parsi founded the National Iranian American Council (NIAC) "to enable Iranian Americans to condemn the Sept. 11, 2001, terror attacks and that he has since run it as a grass-roots group aimed at strengthening their voice." The organization supports engagement between the US and Iran in belief that it "would enhance our [US] national security by helping to stabilize the Middle East and bolster the moderates in Iran."[2] On the group's formation, Parsi commented, "We realized that our primary thing that separates the Iranian-American community from the Jewish-American community, the Arab-American community, the Armenian-American community is that the Iranian-American community has shunned political participation."[3]

In 2007, Arizona-based Iranian-American journalist Hassan Daioleslam began publicly asserting that NIAC was lobbying on behalf of the Islamic Republic of Iran. In response, Parsi sued him for defamation. As a result of the lawsuit, many internal documents were released, which Washington Timesnational security correspondent Eli Lake stated "raise questions about whether the organization is using that influence to lobby for policies favorable to Iran in violation of federal law."[3]

In September 2012, U.S. Federal District Court Judge John D. Bates threw out the libel suit against Daioleslam on the grounds that "NIAC and Parsi had failed to show evidence of actual malice, either that Daioeslam acted with knowledge the allegations he made were false or with reckless disregard about their accuracy."[4] On April 9, 2013, Judge Bates ordered NIAC to pay $183,480.09, plus interest, to cover a portion of Daioleslam's legal expenses.[5] On February 10, 2015, a decision by the United States Court of Appeals for the District of Columbia Circuit "determined that NIAC had 'flouted multiple court orders' and improperly delayed its delivery of documents to Daioleslam during the discovery portion of the lawsuit and even withheld certain documents. During the trial, the NIAC provided inconsistent statements about its internal computer system and recordkeeping, and then used those later-disproved claims to drag out the discovery process for years."[6]